Watchdog: Bailouts created more risk in system

Yahoo ^ | 1/31/2010 | Staff

[Red in Blue PA]

WASHINGTON (AP) -- The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

[greeneyes]

Amen, you are soooooooo right.

[Oceander]

Clearly, none of the root causes have been addressed, and the symptoms that have been addressed have been addressed with the financial equivalent of "hair of the dog that bit you" - essentially, the ponzi scheme has been reinvigorated.

[myknowledge]

AIG is the biggest bank robber of our time.

[Proud_USA_Republican]

Moral Hazard Ping.

[Proud_USA_Republican]

Negative. That honor goes to the Fed + “Too big to fails” aka Goldman Sachs, JPMorganChase, Citi, and BofA.

[blam]

"Beans, blankets, bullets, & Bibles...."

Guns, Grits & Gold.

[Rickster GloucesterVA]

Embedded in this article was this gem:

"Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system."

Several points stand out from this and the general thrust of the entire article:

1.There has been no effort to revise the root causes.

2.Despite the assertion, "lavish pay for executives" is not the root cause. It may be a symptom, but unless they are paying them 1/4 of all profits or somesuch figure, a few overpaid executives isn't going to amount to all that much, percentage-wise.

3.Barofsky apparently wants us to be mad at the overpaid executives. And that would be because ____?

4.Captain Obvious arrives again in the last statement. There's a "Duh" embedded in there. If you rig the system so you can't fail, what's the incentive NOT to take a risk? Which proves that the whole idea is absurd in the first place, and why are we even mildly surprised at this result?

So it all seems pretty obvious. A huge bailout, billions paid out to avert a disaster (ostensibly), then we find out that it didn't change anything, and it's likely to get worse.

This is why throwing around so much money without a specific plan to address a specific issue, with specific guidelines and specific oversight and responsibility will always fail.

Heck, a high school senior could figure THAT out.

So we have the most brilliant minds at work on our problems - NOT - and we're squandering bazillions of our tax dollars, and nobody, *NOBODY* in the administration or the media is jumping on this. You think this little report will ignite a firestorm of indignation? Calls for reform, and immediate corrective action? Huh. What you smokin', fool?

This makes me hopping mad, and I didn't think I could get more upset about the crap going on.

[giobruno]

Take the hyper-inflated mortgages, bundle them up as securities, get the ratings agencies to call dogturd lobster bisque, sell them into the international bond market to investors at all levels (many of whom would never be allowed to invest at the actual risk they actually were, see, ratings agencies above), and then get the Fed to sign off on outrageous leverage limits so it is possible to make more money than Croesus until the ponzi scam winds out. And when the hole opens up and begins swallowing banks, use every manner of backdoor and front-door deal from Washington, putting a gun to the head of the larger economy and claiming that without a payout, the nations gets it.

Free markets bought off regulators, wrote preferential deals, bought influence, drafted bad legislation, and otherwise scammed the system for all it was worth, and those people are still at it. There is plenty of blame to be placed at the government for all their complicity, but a market that runs on ponzi finance has plenty of cash to grease the wheels before the thing runs off the tracks. Free markets must have a real and enforced rule of law, and a meaningful regulatory apparatus or they will quickly become a free-for-all.